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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Yeo Hiap Seng Limited (SGX:Y03) is about to go ex-dividend in just four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Yeo Hiap Seng's shares on or after the 6th of May, you won't be eligible to receive the dividend, when it is paid on the 21st of June.
The company's next dividend payment will be S$0.02 per share, and in the last 12 months, the company paid a total of S$0.02 per share. Based on the last year's worth of payments, Yeo Hiap Seng stock has a trailing yield of around 3.5% on the current share price of S$0.57. If you buy this business for its dividend, you should have an idea of whether Yeo Hiap Seng's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
See our latest analysis for Yeo Hiap Seng
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Yeo Hiap Seng distributed an unsustainably high 182% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. A useful secondary check can be to evaluate whether Yeo Hiap Seng generated enough free cash flow to afford its dividend. Luckily it paid out just 7.1% of its free cash flow last year.
It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Yeo Hiap Seng fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
Click here to see how much of its profit Yeo Hiap Seng paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by Yeo Hiap Seng's 12% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.